Authorities have installed security screening gadgets created by a single Chinese company with deep ties to China’s military and the ruling Communist Party’s highest echelons in some of the world’s most sensitive locations.
Davos hosts the World Economic Forum. The largest ports in Europe, from Amsterdam to Athens, there are several airports to choose from. The NATO-Russia boundary, all rely on Nuctech technology, which has quickly risen to become the world’s leading company for cargo and vehicle scanners in terms of sales.
According to public procurement, government, and corporate records reviewed by reporters, Nuctech has been barred from entering the United States for years due to national security concerns, but it has made significant inroads across Europe, installing its devices in 26 of the EU’s 27 member states.
On both sides of the Atlantic, the intricacy of Nuctech’s ownership structure and its rising global influence has sparked concern.
An increasing number of Western security professionals and lawmakers are concerned that China may use Nuctech equipment to destroy vital transit points or gain unauthorized access to government, industrial, or personal data from goods passing through its devices.
Nuctech’s detractors claim that the Chinese government has essentially funded the company in order for it to undercut competitors and give Beijing leverage over crucial infrastructure in the West as China attempts to establish itself as a global technology superpower.
“The data that these devices process is extremely sensitive; it’s personal information, military information, and cargo information. It’s possible that trade secrets are at stake. Before becoming a member of the European Parliament, Bart Groothuis, director of cybersecurity at the Dutch Ministry of Defense, said, “You want to make sure it’s in the proper hands.” “You’re reliant on a foreign player who is a geopolitical foe and strategic competitor.”
According to him and others, Europe lacks the instruments to monitor and oppose such potential expansion. Different member states have taken differing positions on the security dangers posed by Nuctech. No one has been able to compile a thorough public count of where Nuctech devices have been put across the continent.
Nuctech disputes these worries, claiming that the company’s European operations abide by local laws, including stringent security checks and data privacy regulations.
“It’s our equipment, but it’s your data,” says the narrator. “What happens with the data is up to our customer,” said Robert Bos, Nuctech’s deputy general manager in the Netherlands, where the business operates a research and development facility.
Nuctech, he claims, has been the victim of false allegations that have reduced its market share in Europe by roughly half since 2019.
“To be honest, it’s extremely aggravating,” Bos told reporters. “We’ve never had a breach or data leak in the 20 years we’ve been delivering this equipment.” We never have any confirmation of that until today.”
‘IT’S NOT SIMPLY A BUSINESS,’ says the narrator.
Nuctech has found itself on the front lines of the U.S.-China war for technological superiority, which is now playing out across Europe, as security screening becomes increasingly linked and data-driven.
The company also makes explosives detectors and networked devices capable of facial recognition, body temperature monitoring, and ID card or ticket identification in addition to scanning systems for people, baggage, and cargo.
Nuctech’s parent business claims on its website that the company does more than just provide hardware, combining “cloud computing, big data, and the Internet of Things with safety inspection technologies and products to provide the clients with hi-tech safety inspection solution.”
Critics believe that, under China’s national intelligence rules, Nuctech will be unable to resist orders from Beijing to provide up sensitive data about the goods, persons, and devices that pass through its scanners. They claim there’s a chance Beijing might leverage Nuctech’s position across Europe to collect huge data on cross-border commerce flows, take information from local networks such as shipping manifests or passenger information, or destroy trade movements during a crisis.
X-ray security scanners could potentially be used to covertly collect and transmit information, compromise portable electronic devices as they pass through the scanner, or alter results to allow transit of “nefarious” devices, according to a Canadian government security review of Nuctech released in July 2020.
In late 2020, the European Union put in place rules that can be used to vet Chinese foreign direct investment. Despite mounting worries about unfair state subsidies, lack of reciprocity, national security, and human rights, politicians in Brussels claim there are presently no EU-wide processes in place to examine Chinese procurement.
“It’s becoming increasingly risky.” “I wouldn’t mind if one or two airports had Nuctech devices,” Axel Voss, a German member of the European Parliament who focuses on data privacy, said. “It’s becoming more and more of a security issue.” You might think it’s a Chinese government strategic investment.”
The United States, which is home to OSI Systems, one of Nuctech’s most major commercial rivals, has taken a harsh stance against the company. Nuctech has been a source of worry for the US Senate Committee on Foreign Relations, the US National Security Council, the US Transportation Security Administration, and the US Commerce Department’s Bureau of Industry and Security.
Nuctech was judged unfit to access sensitive security information, according to the Transportation Security Administration. “Nuctech products are not permitted to be used for passenger, luggage, accessible property, or air cargo screening in the United States,” according to the TSA.
Nuctech was listed to the Bureau of Industry and Security Entity List in December 2020, banning exports to the company on national security concerns.
“It’s not simply business,” a US government official who spoke on the condition of anonymity said. “It’s utilizing state-backed enterprises, state subsidies, and low-ball bids to get access to European key infrastructures, such as civil airports, passenger screening, seaport screening, and cargo screening.”
According to Nuctech’s competitors, the U.S and European officials, and China scholars, Nuctech’s bids in Europe can be 30 to 50 percent lower than their competitors. Other sweeteners, such as extended maintenance contracts and attractive loans, are sometimes included.
Nuctech’s primary European competitor, Smiths Detection, protested in 2009 that such methods were driving it out of the market, and the European Union responded by imposing a 36.6 percent anti-dumping tariff on Nuctech cargo scanners.
“Nuctech comes in with market-beating bids that no one else can match.” “It’s not a normal pricing; it’s an economic statecraft price,” Didi Kirsten Tatlow, co-editor of “China’s Quest for Foreign Technology,” explained. “It’s not truly a business.” They’re more akin to a wing of a state-led development initiative.”
Nuctech’s Bos claims that by manufacturing in Europe, the company can keep pricing low. He stated, “We don’t have to import items from the United States or other countries.” “We can be very competitive since our supply chain is quite efficient with local suppliers.”
Nuctech has a long list of accomplishments. The organization, which is expanding to Brussels, Madrid, and Rome, claims to have served customers in over 170 nations and areas. Nuctech announced in 2019 that it had installed over 1,000 security check devices for customs, civil aviation, ports, and government agencies across Europe.
Norwegian Customs issued a request for a new cargo scanner for the Svinesund checkpoint, a series of squat, grey buildings near the Swedish border, in November 2020. A competitor in the United States and two other firms protested that the agreements as stated gave Nuctech an unfair advantage.
Despite the fact that the specifications were modified, Nuctech was awarded the contract. According to Jostein Engen, head of procurement for the customs agency, the Chinese company outperformed its competitors on both price and quality, and none of Norway’s government ministries raised red flags that would have disqualified Nuctech.
“We in Norwegian Customs must handle Nuctech the same way we treat everyone else in our industry,” Engen said. “Following EU laws on public tenders, we can’t do anything else.”
Estonia, Latvia, Lithuania, and Poland, four of the five NATO member states that border Russia has purchased Nuctech equipment for their border crossings with Russia. Finland has done the same.
According to parliamentary testimony, Nuctech devices are used in Europe’s two major ports, Rotterdam and Antwerp, which together processed more than a third of goods entering and leaving the EU’s main ports by weight in 2020.
According to public procurement papers and government declarations, the United Kingdom, Turkey, Ukraine, Albania, Belarus, and Serbia have all purchased Nuctech scanners, some of which were provided or financed with low-interest loans from Chinese state banks.
Procurement and government documents, as well as business announcements, show that airports in London, Amsterdam, Brussels, Athens, Florence, Pisa, Venice, Zurich, Geneva, and more than a dozen more across Spain have all inked deals for Nuctech equipment.
Nuctech claims to have supplied security equipment for the 2016 Summer Olympics in Brazil, President Donald Trump’s visit to China in 2017, and the World Economic Forum in 2020. According to procurement documents, it has also provided equipment to various United Nations institutions.
RISING CONCERN
As Nuctech’s market dominance has increased, so has the company’s distrust.
After a government investigation discovered an “elevated threat” of espionage, Canadian officials rejected a standing offer from Nuctech to deliver X-ray scanning equipment to more than 170 Canadian diplomatic missions across the world.
According to Margiris Abukevicius, vice-minister for international cooperation and cybersecurity at Lithuania’s Ministry of National Defense, Lithuania blocked Nuctech from providing airport scanners earlier this year after a national security review found that the equipment couldn’t operate in isolation and there was a risk information could leak back to China.
Then, in August, Lithuania authorized an agreement to install a Nuctech scanner on its Belarus border. According to two Lithuanian officials, there were only two bidders, Nuctech and a Russian company, both of which raised national security issues, and there was no time to renew the competition.
“It’s essentially an ad hoc decision,” Abukevicius explained, “choosing between terrible and worse options.” He also stated that the government is working on a roadmap to replace all Nuctech scanners presently in use in Lithuania, as well as a legal framework to prohibit government institutions and crucial sectors from purchasing untrustworthy equipment.
Nuctech is also facing headwinds due to human rights issues. In Western China’s Xinjiang province, where Beijing is accused of genocide for widespread detention and maltreatment of minority Uighur Muslims, the corporation does business with police and other officials.
Despite pressure from US and European authorities to avoid conducting business in Xinjiang, European governments have continued to give Nuctech contracts worth tens of millions of dollars, some of which are supported by European Union money.
Nuctech claims that China’s western provinces, including Xinjiang, are “key business locations” for the corporation on its Chinese website. It has inked many contracts with Xinjiang’s Department of Transportation and Public Security to supply X-ray equipment.
According to Chinese official documents, it delivered license plate recognition devices for a police checkpoint in Xinjiang and an integrated security system for the subway in Urumqi, the region’s main city. It exhibits its security equipment at Xinjiang trade shows on a regular basis.
“Companies like Nuctech directly support Xinjiang’s high-tech police state and intrusive methods of ethnic minority suppression.” “When Western governments and corporations interact with Nuctech, this should be taken into account,” said Adrian Zenz, a researcher who has documented atrocities in Xinjiang and amassed proof of the company’s activity in the province.
Bos of Nuctech said he understands those points of view, but that the company strives to stay out of politics. “Our daily goal is to have more and better equipment to secure the world,” he stated. “We don’t get involved in politics.”
A COMPLEX OWNERSHIP WEB
In 2018, Nuctech launched a facility in Poland with the slogan “Designed in China, Made in Europe.” The state-owned Assets Supervision and Administration Commission of the State Council in Beijing, China’s top governing authority, has ultimate accountability for the corporation.
Outsiders may find it difficult to understand the underlying lines of power and accountability in Nuctech’s ownership structure since it is so complicated.
The ambiguous boundaries between the Communist Party, state companies, and financial institutions in China — which have only grown murkier under China’s leader, Xi Jinping — can make it difficult to understand how companies like Nuctech are structured and operate, according to Scott Kennedy, a Chinese economic policy expert at the Center for Strategic and International Studies in Washington.
“Consider what would happen if the roles were reversed. If the Chinese were buying this equipment for their airports, they’d demand a slew of guarantees, according to Kennedy. “Because they don’t feel safe with foreign technology in their supply chain, China has begun a high-tech self-sufficiency drive.”
What is evident is that Nuctech has been linked to the Chinese government, academic, and military interests since its inception.
Tsinghua University, an outstanding public research university in Beijing, founded Nuctech as a spin-off. It expanded with Chinese government support and was led for many years by the son of China’s former leader, Hu Jintao.
Nuctech’s ownership structure was mapped by Datenna, a Dutch economic intelligence firm focused on China, and it revealed a dozen important companies spanning four tiers of shareholding, including four state-owned enterprises and three government agencies.
Tongfang Co., which owns 71 percent of Nuctech, is the company’s biggest shareholder today. The investment arm of China National Nuclear Corp. (CNNC), a state-run energy and defense corporation controlled by China’s State Council, is Tongfang’s largest stakeholder. CNNC is classified as a Chinese military corporation by the US Defense Department because it exchanges advanced technologies and experience with the People’s Liberation Army.
Xi has blurred the barriers between China’s civilian and military activities while strengthening the Communist Party’s grip on private businesses. One approach is to establish a slew of government-backed funding vehicles aimed at accelerating the development of technology with both military and commercial applications.
One of these vehicles, the National Military-Civil Fusion Industry Investment Fund, said in June 2020 that it planned to buy a 4.4 percent investment in Nuctech’s largest shareholder, as well as the right to elect a director to the Tongfang board of directors. Tongfeng claimed in a Chinese stock exchange filing that it never materialized because of “changes in the market climate.”
Other connections exist between Nuctech’s ownership structure and the fusion fund, though.
According to Qichacha, a Chinese business information website, CNNC, which owns a 21% share in Nuctech, has a stake of more than 7% in the fund. They also have personnel in common: Chen Shutang, a director of the fund and a member of CNNC’s Party Leadership Group, is the company’s head accountant.
“The question is whether we want Nuctech, which is controlled by the Chinese government and is related to the Chinese military, to be involved in critical sections of our border security and infrastructure,” said Jaap van Etten, a former Dutch diplomat and CEO of Datenna.
Nuctech claims that market forces, not politics, determine its activities and that CNNC has no authority over its corporate management or decision-making.
“We’re just a regular commercial operation here in Europe that has to follow the rules,” Nuctech’s Bos explained. “We employ locals, pay local taxes, contribute to the social community, and use local suppliers.”
Experts, however, say that these connections highlight the company’s strategic importance to Beijing and provide further proof of government and military interests encircling it.
“Under Xi Jinping, the state’s national security and technology and innovation components are being fused,” said Tai Ming Cheung, a professor at the University of California, San Diego’s School of Global Policy and Strategy.
“One of the primary battlegrounds between the US and China is military-civil fusion. The Europeans will have to determine their position.”
